A banker meets a bitcoiner

David Gee on Nov 7, 2014 (ITnews)

http://www.itnews.com.au/Feature/397519,a-banker-meets-a-bitcoiner.aspx 

Former CIO David Gee meets Bitcoin guru Jason Williams.

During the earliest days of trade, individuals moved from a barter system to an exchange of promissory notes. Along the way, coinage was developed as a medium of exchange.
The original value of a currency had a clear link to the material used (rare metals) and this developed into an undertaking by the government or bank to honour this instrument.

The so-called ‘gold standard’ established the US Dollar as the standard for international trade in the early 1900s under the Bretton Woods system.

Arguably, we can now consider that the old world order. China has three trillion in cash reserves and is in effect owning the US as a debtor.

This disruption has opened up the opportunity for alternative currencies. Alternative currencies might be both digital and government-approved, as is the case with Hong Kong, where the Octopus card can purchase just everything. Or they can be non-currencies like Paypal, emerging during the dot com boom.

Bitcoin is the latest and most disruptive of these alternative currencies, and this week I sat down with Jason Williams, founder of BitPoS and president of the Bitcoin Association, to get the lowdown on what it means for bankers like me.

DG: What is Bitcoin and why is an algorithm valuable?

JW: Bitcoin is actually two things. Upper case B Bitcoin is generally referred to as the protocol, while lower case b bitcoin is the unit of currency.   
Why is bitcoin valuable? In 2009 we marked the first time in history a protocol has been developed that solves the issue of currency issuance without the need for a controlling entity.
Commonly, Bitcoin creates "digital scarcity". What this means is if I give you a bitcoin, I can't give that bitcoin to someone else, unlike say an mp3 which I can give out as many copies as I want. It is precisely for this reason – an absence of controlling entity and the inability for you to spend the same bitcoins twice - that makes the protocol such an important and valuable invention.

DG: The algorithm itself does not have any utility that can be used for any other purpose and thus has no intrinsic value like gold does. But in the digital age as we move bits and bytes around the globe rather than actual cash, does this attain a value?

JW: With things like gold, there are (obviously) lots of different things that can be made with it – everything from electronics to jewellery.
Likewise with bitcoin. There are quite a few applications that are being built on top of the blockchain that are not directly related to transferring units of value around.
A good example in this case is the announcement by Patrick Byrne of overstock.com. He is working with a counterpart to develop an application that will compete with the NYSE and NASDAQ.
We are very early on in the bitcoin lifecycle - the technology is new. As new ideas that are not directly related to shifting units of value around are discovered, the underlying technology will become more valuable.

David Gee and Jason Williams attempt to buy two beers using Bitcoin

DG: How does one go about mining for bitcoins? 

JW: Back when bitcoin was first released, you could mine with a computer. You can't do that now. Since then, an arms race of sorts has occurred. There really was a massive evolution in mining from CPU's to GPU's to things called FGPA (Field Gate Programmable Arrays) and then on to ASICs (Application Specific Integrated Circuit).
Right now, the ASIC architecture is as good as it gets. With an ASIC chip, the program is etched into the silicon, and can't be changed, erased or reprogrammed, unlike the previous technologies.
Bitcoin mining has really become industrialised. You'll need a bunch of money, access to ASIC miners and somewhere to house them. It's generally accepted to be outside the realm of hobbyists these days, unfortunately.

DG: A rookie question – wouldn’t a Google or Amazon have the firepower to create their own coins then?
JW: Quick answer, yes and no.
What I mean by this is that the computing power these guys have doesn’t even fit into the same ballpark as the computing power that is already employed to secure the bitcoin network.
If Google and Amazon suddenly shifted all their computing power to bitcoin mining, they would still be dwarfed by the hash power on the network. This is because mining has gone way past the inefficiencies of CPU mining and is now firmly in the realm of dedicated single use processors called ASIC processors.

It is a completely different story if Google and Amazon were to dedicate their financial resources to bitcoin.

Success! Beer purchased with Bitcoins

DG: How many crypto currencies are there? Why is bitcoin the one that will succeed?

JW: There are literally hundreds of "alts" (crypto currencies that are not bitcoin) out there.  In fact, there are websites out there where you can go to and create your own personalised alt.
While there are technical differences in many of the alts, (perfect anonymity, reduced confirmation time etc), from an end user perspective in a mass market, there are no alts that offer anything substantial over bitcoin in terms of use.

Bitcoin will succeed because it has the biggest penetration, it has been tested the most, it has the largest mining network, the biggest mindshare and is the one that most of the venture capital money is being poured into in order to build out the infrastructure required for mass adoption.

DG: Who needs to be concerned as crypto-currencies disrupt their industries?
JW: There are some obvious candidates here, namely the international remittance sector. Because bitcoin lives on the internet and there are no borders, there is no difference to sending bitcoins to the person next to you, or a person in a different country.

DG: What percentage of bitcoin trade is on the so-called 'dark net'?
JW: I'd like to think that with the advent of payment processors, the percentage of use on the dark net has dropped. There are so many things you can buy with bitcoin, whether it's pizza, beer, meals at restaurants, clothes etc
It is worth saying however, that as with traditional currencies, there are uses that may not be legal, but as with traditional currencies, the bulk of usage will be above board.

DG: My take is that the difficulty of tracing crypto currencies is what I believe makes government institutions concerned. For countries like China, they would be worried about this being another channel to move money fairly anonymously.
JW: As with anything new, there will be a period of adjustment. Governments need to take technology like bitcoin seriously as it represents a real and genuine paradigm shift away from traditional models.
In Australia, just recently, the Victorian police announced the seizure of a substantial quantity of bitcoins. This is an indication that, just by using bitcoin, you’re not immune to police action.

DG: There must be a few events that will be the tipping point for crypto currencies to be accepted as mainstream and not a speculative instrument - what do you think these will be?
JW: I think regulation will play a big part in this. With most regulation in Australia it’s a classic case of square peg and round hole. Once regulation starts to change, you'll see more players from traditional backgrounds adopting bitcoin in their daily lives.

DG: What will it take in Australia to change this dynamic?
JW: The Australian government has already announced a Senate enquiry, it is actions like these that will change the face of regulation in Australia.

DG: What industries or businesses in Australia are actively evaluating using bitcoin?
JW: At this stage there is a lot of interest in the retail sector. Second on this list is the b2b market. It’s so incredibly easy to pay an invoice with bitcoin, its fast, and perfectly secure. There is a real opportunity for business to positively affect their bottom line with bitcoin remittance.

DG: Jason, you are a former techie at a mainstream bank – how did that experience shape your interest in bitcoin?
JW: I worked on a technical team to implement AML [anti money laundering] solutions for a major banking group in Australia. Before that, I didn't really have much of an idea what AML was or entailed. It was interesting to learn the technical processes behind AML, and also some of the business background as to why and why it’s important.
I wouldn't say that experience shaped my interest in bitcoin per se, but more to the philosophy in how my company, BitPOS, is positioned. With the square bitcoin peg and the round hole that is existing regulation, we do our best to comply where appropriate and have great advice from our founding partners.
DG: How do most of your peers back at the banks feel about its potential?
JW: There are a few different reactions to bitcoin from my colleagues back at the bank, ranging from curiosity, to excitement and wanting to know more, to dismissing bitcoin as something like a toy. One thing is certain though, most people don't really fully grasp there is a completely new financial system being rolled out in parallel and independent of the legacy one and how completely disruptive that is.

DG: What will bitcoin mean in terms of system changes for existing applications?
JW: As with any change – such as the move to the Euro, for example - there will be a lot of change required. There are lots of bitcoin companies providing services, and as time goes on, you'll find specialists emerge that can cover system changes with ease.
In terms of accounting-type software, most multi-currency systems should already be able to support something like bitcoin with little to no change.

DG: As Bitcoin is by nature open source and unregulated; how does one overcome concern around the risk of the platform?
JW: It depends on how you define risk. If you define risk as someone being able to steal bitcoins by hacking the codebase, there is little to no chance that will happen. Firstly, the encryption algorithms themselves have been under intense scrutiny by academia for years and have been found to be very secure.

It is also extremely unlikely someone could inject some malicious code into the codebase. There are many smart people who look at this stuff every day, who have the checks and balances in place to ensure this doesn’t happen.

DG: What are the implications for cyber security if a firm adopts bitcoin as a payments platform? I assume that there would be security required for the ‘wallet’ that stores the private key components?
JW: From a technology perspective, bitcoin runs on port 8333, so corporate systems would have to allow that port in. It is also possible for a company network to run an ‘edge node’ in a DMZ and have any local nodes point to that.

Rather than have a single private key signing transactions, best practise for an organisation is to have multisig wallets set up. This could be considered both an accounting and security control.

Multisig relies on more than one key to approve the transfer of bitcoins from one address to another. What this means practically is you could have one key sitting with an approving manager, and one key sitting with an accounts payable clerk with a backup key stored in a vault somewhere.
As I mentioned, not only do you get accounting control, it also raises the bar for any intrusion on the network as they to (in this case) identify and steal two of the three keys.

DG: When do you expect to be the year of Bitcoin to be mainstream?
JW: Ha! My crystal ball has been broken for some time now!

DG: I’ll give you my prediction. I would say it is not going to be 2015, as there are still forces at play which are making Bitcoin more volatile than it should be. Given that real time payments in Australia are due in 2017, that might raise the awareness of the value of a digital currency to move money around instantly rather than using a settlement approach.
However, as there will be resistance to changing the current reward systems that exist in payments, then it's uptake is more likely to happen inorganically. Regulatory acceptance takes longer than we think. As we have seen with mPesa in Africa, it might have to be a consumer lead revolution.
Could I then speculate that the year of Bitcoin is going to be 2020?

JW: I’m a little more bullish on that front. With millions of dollars being poured into development and rollout of the bitcoin infrastructure, I’d hope that Bitcoin would begin mainstream adoption before then.

Read more: http://www.itnews.com.au/Feature/397519,a-banker-meets-a-bitcoiner.aspx#ixzz3ILc2GcUT

My first 90 days as a CIO

David Gee CIO Magazine  on 17 June, 2014

On day one at CUA, I shared my 90-day plan with the CEO. I had prepared this plan before walking through the company’s doors for the first time. It was also shared with my peers over the next few days and weeks during our initial one-on-one meetings.

From day one, my diary was populated with meetings that were inherited and my inbox was full of messages from internal and external contractors. It’s likely that yours is too no matter where you are working.

First things first, I meet with my executive assistant to determine how we are going to work together. We discuss when I need some ‘think time’, the priorities in my schedule, how to best deal with vendors and other external requests, and my overall plans for the next three months.

Setting out my own agenda was the most important task I completed during this period at CUA and in other previous roles. I learnt very quickly that events and meetings would consume me unless I was clear where I wanted to focus my time and energy.

My next priority was to get some regular face time with my direct manager, as there are always going to be some tips and traps that are mentioned during the interview process.

After securing time with my direct manager, my first task was to determine his expectations. I ask for clarification on the burning issues while actively listening to his concerns. I knew that I only received a download of what was top of mind for my manager; there would be other items on the agenda that weren’t immediately communicated to me.

At this early stage, it is critical that as a new CIO, you learn and challenge what you are being told. Your honeymoon period ends quickly so the sooner you are seen to be taking charge, the better.

My advice here is to ask your direct manager where he or she expects you to be from a broader leadership standpoint. Discuss specific areas that you could provide energy and focus. Then walk your manager through your 30, 60 and 90-day plan and ask for input and ideas. I did.

It’s also useful to understand some basics around how to work you’re your manager; ask questions like: When issues arise, should I use voicemail, email or field calls through his or her assistant?

Create your brand

While you may be quietly confident you can succeed, you are aware of the fact that the previous CIO was perceived by his or her peers in a certain way.

But what the previous CIO did or didn’t do is irrelevant. Creating your own brand is important and you will need to consider what will be particularly valued and expected of you.

Remember your brand is ‘what they say about you when you are not in the room’. Being as explicit as possible in the first day, first week and first months is vital. As the new leader, you are setting the expectation of what normal means to you.

In my first 30 days at CUA, I was feeling mixed emotions as I mentally transitioned from my old position and started to understand what was expected of me in this new role.

You may feel the same. It’s likely that you feel that everyone wants a piece of you, and you may be a little unsure about how to interact with others.

The overarching theme for your first month is ‘people’. In particular, you need to spend the bulk of your time with your internal customer. You’ll also be well aware that your new team is anxiously waiting to engage with you, so getting this balance right will be your challenge.

Engage your peers and staff

Be sure to meet with as many people as you can at the organisation as early as possible. At these meetings, tell them what you stand for, how you like to work and what you expect.

Share your 30, 60, and 90-day plan with them. While some of this will be sensitive, remember that telling them what you are focusing on will eliminate much of their personal anxiety.

I remember sharing a short list of 5 things that I expected from my team when I started at CUA. It was interesting to see that many staff later printed out this and stuck this on their cubicles.

In one-on-one and group meetings, I smile but ask many questions, some of these interactions are to learn about the culture and the people. These innocent discussions get repeated and whatever I ask is shared around and this helps staff form their perceptions of me as a person and my agenda.

Engaging your peers and the business in introductory discussions is going to be what seems like an endless series of one-on-one meetings. Some of these will be very cordial and others possibly more contentious from the get go.

After the initial meetings with key internal staff, take some time to prepare a ‘stakeholder analysis and influence map.’ Try to anticipate where they are now from a relationship standpoint and how you will build your coalitions going forward. Be sure to ‘test’ these assumptions with these persons in your follow-ups.

From my last experience, I learnt that your peer’s perception of your role has often been well formed from your predecessor and it takes a concerted effort to shift whatever baggage exists.

In these first meetings with my peers, after the general niceties and understanding the context of their role, I asked them what they thought was required to change.

I also made sure that I asked them to help with my own orientation to speed up my own learnings about the business.

More specifically, these were great opportunity for understanding if there were critical issues. Paying personal attention to this without taking over is going to set the right tone with the organisation.

Make an impact

As you examine your portfolio, you can make a large impact as a leader by deciding early to ‘start’ or ‘stop’ something that is in progress.

It is my experience that stopping an initiative before you start a new one sends a balanced message that you are making the hard choices. Making these choices is really the essence of strategy.

Being decisive becomes part of your brand. At CUA, we had a number of procurement concerns – one in particular was ‘shelfware’ that had been purchased and never actually used. I engaged a peer to provide a better solution for next to nothing.

This was a quick win and having one in your first 90 days is always going to be a preferred approach. However from a bigger picture standpoint, you have a personal stake in creating a culture of innovation and continuous improvement.

Thus setting this environment and having a series of quick wins can start your team on that journey. Once these wins or changes are agreed, be sure to market them widely.

Don’t ever be afraid to self promote yourself and your team. The pride you demonstrate can become contagious with the troops.

Your time will be stretched during these first 90 days and you’ll be subjected to much stress, so be sure to devote time to yourself and your family. Getting this balance right is difficult, but remember you are the only person who can control this. Taking time out to reflect will help you manage and think through where you spend your energy.

A good technique I have used is to set yourself some goals around where you want to spend your time and comparing this to where you actually spend your time can be enlightening.

As a rule of thumb, I spend 30 per cent of my time with direct reports and coaching staff, 20 per cent networking with peers and 25 per cent on transformation projects. I spend 15 per cent of my time in operational meetings and on field visits, and 10 per cent visiting external customers and learning best practices.

After I completed my first 90 days at CUA, I made sure my progress was very visible to my team and my manager.

Was it a mistake to then not create a next 90-day plan? Probably, but as we know events do overtake best intentions and the important thing is that you establish a pattern that you and your team understands.

David Gee's 90-day plan is encapsulated in the graphic below.

 http://www.cio.com.au/article/547624/my_first_90_days_cio/